Travel firms lift U.K. stocks as oil price drops

SarahTurner

Corrects story to reflect that in the prior session, stocks ended lower.

LONDON (MarketWatch) -- U.K. stocks ended with slight gains on Friday, with the oil price drop causing a rise for consumer-discretionary stocks and a fall for the companies that extract oil and miners.

The FTSE 100 index (UKX), down for part of the day, closed with a rise of 0.2%, or 11.7 points, to 5,489.20, with travel companies in particular rallying as crude oil futures fell as much as $4 a barrel. See Futures Movers.

A higher oil price can act to crimp consumer spending as it raises fuel bills for households. It can also make interest rate cuts more unlikely as central banks focus on controlling inflation.

Darren Winder, strategist at Cazenove, said that after a period of exceptional weakness for share prices, the valuation case for a number of cyclical stocks has strengthened considerably over the past few months.

"Even allowing for what could be a prolonged period of below-trend growth in economic activity, it is questionable whether the resulting adjustment to profit estimates will be as dramatic as implied by current share prices," he said.

Both Thomas Cook and Tui Travel give updates next week. Dresdner Kleinwort said a survey of 200 travel agents showed "encouraging" results with evidence of strong late books, less late discounting and a pick-up in 2009 bookings.

With commodity prices unwinding, miners and oil producers unsurprisingly had a difficult session.

Royal Bank of Scotland (RBS) helped to support the top index, with a rise of 3.2%.

Although the U.K.'s second largest bank swung to a first-half net loss of 802 million pounds ($1.56 billion) -- after slashing the value of its risky debt positions by 5.93 billion pounds --the result wasn't as bad as many had feared. Read more on RBS.

Vodafone Group
VOD, -1.40%
(VOD) spent much of the session in the red but ended 0.7% higher. Goldman Sachs cut its stance on the telecom to neutral from buy, citing earnings risk.

"Vodafone's fiscal first-quarter to June 2008 showed weaker revenue growth in Europe than we had expected and in particular heightened risk in Spain...with elements of its Spanish weakness looking company specific, earnings risk remains somewhat elevated," the broker said.

Outside the top index, shares in toy and DVD retailer Woolworths (WLW) climbed 6.2%, building on strong gains made Thursday.

The Times (of London) newspaper reported that property tycoon Ardeshir Naghshineh, chairman of Targetfollow Group, raised his stake in the firm to more than 10%, prompting the U.K. takeover watchdog to request clarification of his intentions.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.